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Balance sheet mix improving

Quick Pointers:

? Beat on core PAT due to better NII/NIM led by lower funding cost.

? Asset-liability calibration progressing well which is cushioning NIM.

FB saw a strong quarter due to 6.6% beat on NII as NIM increased QoQ despite estimate of a decline. Reported NIM did not contain any one-offs and rose by 12bps QoQ to 3.06% led by (1) reduction in higher cost liabilities over last 1-yr (2) increase in avg. CASA by 155bps QoQ and (3) better liquidity management. Balance sheet calibration is progressing well; low yielding corporate+housing share has fallen by ~100bps YoY to 49.6% and share higher cost liabilities has also reduced. Due to faster downward repricing of liabilities, NIM may improve in H2FY26. Hence, we raise NIM for FY26/27E by 14bps each to 2.9%/3.1%. Fee momentum is intact; we are watchful of opex. We raise core PAT for FY26/27E by avg. 5.8% due to increase in NIM by 14bps each. Keeping multiple at 1.3x we raise TP to Rs235 from Rs220 as we roll forward to Sep’27 ABV. Retain ‘BUY’.

? Strong quarter; beat on core PPoP due to better NII/NIM: NII was higher at Rs25bn (PLe Rs23.4bn) due to better NIM (calc.) which was a beat at 3.04% (PLe 2.85%) as reported cost of funds declined by 24bps QoQ to 5.61%. Loan growth was 6.2% YoY (PLe 6.6%) and deposit accretion was 7.4% YoY (PLe 7.9%). CASA was 31.0% (30.3% in Q1’26); LDR rose to 84.7% (83.9% in Q1’26). Other inc./fees were largely in-line at Rs10.8bn/Rs8.8bn. Opex at Rs19.3bn met estimates. Core PPoP at Rs15.3bn was beat by 8.1%; PPoP was Rs16.4bn. Asset quality was steady; GNPA was 1.83% (PLe 1.9%). Gross slippage was Rs5.8bn (PLe Rs5.6bn) while recoveries were slower at Rs2.7bn (PLe Rs3.2bn). Provisions were a drag at Rs3.6bn (Ple Rs3.2bn) owing to std. asset provisions of Rs480mn. Core PAT was 6.6% above PLe at Rs8.7bn. PAT was Rs9.6bn

? Asset mix calibration in progress: Loan growth was soft at 1.4% QoQ due to muted growth in lower yielding segments of housing (-0.9%) and corporate (1.0%) which contribute 36%/14% to overall loans. However, the remaining loan book saw a decent 3.0% QoQ growth driven by CoB (6.9%), gold (3.4%), BuB (2.3%), CC (4.5%) and MFI (2.1%). Balance sheet calibration is progressing well; on loans, corporate+housing share has fallen by ~100bps YoY to 49.6%. On liabilities, the bank is reducing higher cost wholesale deposits/borrowings. Share of wholesale deposits was down by 300bps YoY to 17% and borrowings to deposit ratio has also reduced from 10.8% in Q3’25 to 6.2% in Q2’26. Avg. CASA ratio has increased by 140bps QoQ to 29.1% from 27.7%.

? NIM surprises positively; we upgrade margins: Reported NIM increased by 12bps QoQ to 3.06% without any one-offs; while loan yields fell by 18bps to 8.86%, fall in funding cost was 24bps to 5.6% due to (1) reduction in higher cost deposits/borrowings over last 1-yr (2) rise in avg. CASA by 155/140bps QoQ/YoY and (3) better liquidity management. In the upcoming quarters, due to faster downward repricing of liabilities, NIM would improve in Q3&Q4FY26. Hence, we raise NIM (calc.) for FY26/27E by 14bps each to 2.91%/3.08% which may see further upgrade if change in asset-liability mix is faster.

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